"Apple (NASDAQ: AAPL) is offering a rare opportunity and is now one of our favorite ideas for investors with a multi-year time horizon," says Bill Martin.
In his BullMarket.com, the trading and investing expert explains, "Our bullish thesis on Apple revolves around cash; both the cash on its balance sheet and the cash it is able to generate."
"With approximately $24.5 billion in cash and no debt, about $27.50 of Apple's share price is cash. Meanwhile, the company generated $9.1 billion in cash the past fiscal year.
"Given the way revenue with the iPhone is reported (it's recognized over the life of a contract, not upfront), the cash Apple generates is actually a lot higher than what its earnings indicate.
"Combined, this makes common metrics like P/E ratios not a great way to value the company. If you instead substitute an Enterprise Value (which is basically the market cap with net debt or cash added back in) to cash flow ratio, the stock is trading at only about a 6x multiple.
"That is extremely cheap for a stock with strong long-term growth prospects. Even if cash flow was cut in half next year, we could argue the stock is cheap.
"Outside all the number crunching, Apple still has some of the most popular products out there. The Apple brand is as strong as it has ever been, and while consumer-oriented companies are facing some daunting near-term headwinds given the economy, Apple is probably the best positioned.
"While the number of gifts under the Christmas tree will surely be less than last year, we'd bet that Apple's products will make up a greater percentage than last year.
"In fact, CNBC recently reported that while retail traffic has been poor, anecdotally Apple stores remain packed. To get a clear dominant industry leader like Apple at current prices is a rare opportunity."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
11-27-2008 @ 10:39AM
spaceage said...
Not to mention that the NYT/David Pogue just completely destroyed the Blackberry Storm as "drenched in bugs"...looks like major upside from here for the iPhone...
11-27-2008 @ 12:54PM
Justin Williams said...
I thought that only the original iphone's revenue was reported through the life of the contract and that the 3g was reported all at once due to fact that att subsidizes the cost.
11-27-2008 @ 1:48PM
Kent said...
Hard to believe Apple was on the throes of disappearing a mere 10 years ago losing out to MicroSoft at that time. Steven Jobs was even fired as the CEO, if you all recall. When he returned, he absolutely accomplished a remarkable feat in getting the company back on track. It sets an example for the rest of us.
11-27-2008 @ 9:14PM
Costanza said...
@Kent
Your phrasing almost implies that Apple's nadir in the late 90's, and the firing of Jobs, were related or close together in time.
They were 12 years apart (Jobs was ousted in 85, Apple was in big trouble in 95-96, NeXT was acquired by Apple in 96 or 97).
11-28-2008 @ 12:17PM
iphonerulez said...
I have to say, for a stock that seems such a bargain and is always being touted as a such a cash-making machine, investors sure don't seem to be pouring money into the stock.
Apple doesn't seem any better an investment than, say, IBM or Hewlett-Packard as far as the downturn of the economy goes. Neither of those stocks fell over 50% or as fast as Apple fell even with all it's retail stores, iPhone 3G and App Store supposedly raking in big cash. Something is rather fishy about Apple's stock, to say the least.
11-28-2008 @ 5:15PM
taojones said...
no body's buying anything. at one point the big money will figure there's enough blood and pour back in and apple will get more than its share. i'm buying what i can right now, at least they don't need a hand out. i hope the 24 billion is in gold cuz my only worry is with the fed printing dollars faster than michael jackson can spend them there might be just too many laying around and the 24 billion could do a post war germany thing.
12-03-2008 @ 12:53PM
Stephen Lang said...
There is absolutely nothing fishy or mysterious about Apple stock or Apple the company. They have huge margins compared to HP, Dell, etc. and have a different business model. They are making money hand over fist. The big question going forward is the overall economy and Apple's growth, and whether they can re-ignite it with a new product (just as iPhone have driven growth lately now that iPod sales have levelled off as the product has matured.)